'Fines Only' Is Not Enough For Money Laundering Victims

October 17th, 2012

flickr / Canadian Pacific

Since 1979, but particularly after the invasion of Iran by Iraq, the United States has imposed sanctions against Iran. Whether or not those sanctions are justified or sufficient is not up for discussion, but rather the integrity of American laws and decisions is. Standard Chartered, ING, and HSBC have been circumventing American laws and foreign policy decisions through their lack of transparency and the deliberate lapse of any and all anti-money laundering systems.

Although it is normal to automatically place the blame on the banks, perhaps the blame needs to be distributed in a more representative manner. It is true that the banks are the ones who were complacent in the handling of illicit flows of money and thus were (and perhaps continue to be) collaborators in the rise of financial crime, not to mention the blatant disregard for US law.

In order to accomplish this, they buried suspicious files and hired incompetent and gullible personnel, clearly revealing their intent. What must be noted; however, is that the circumvention of sanctions and other related political decisions is facilitated by the absence of any deterring consequence. Conversely, the respect for political decisions and monitoring mechanisms cannot be expected of firms whose sole purpose of being is money and profit.

So far, HSBC has reportedly set aside $700 million to cover fines (plus $28 million against for the charges raised by the Mexican government against its Mexico subsidiary), ING was fined $619 million, and Standard Chartered agreed to pay $340 million and submit to monitoring in order to settle the allegations levied against it. To put these numbers into perspective, HSBC’s fine is under 5% of their 2012 pretax profit; Standard Chartered paid $340 million in fines on $250 billion worth of transactions. Any simple business model would conclude that this is purely the cost of doing business.

In response to the rise of money laundering and its effect on other crimes, such as drug trafficking and terrorism, the United States established both preventative and criminal measures. It began with the Bank Secrecy Act in 1970, which required individuals, banks and other financial institutions to record and report on their transactions.

After the BSA came several laws to amend and enhance it, such as the Money Laundering Control Act of 1986, the Anti-Drug Abuse Act of 1988, the Annunzio-Wylie Anti-Money Laundering Act of 1992, the Money Laundering Suppression Act of 1994, the Money Laundering and Financial Crimes Strategy Act of 1998, Title III of the Patriot Act: the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, then finally, the Intelligence Reform and Terrorism Prevention Act of 2004.

Also in 2004, Standard Chartered was ordered to submit to monitoring of their deficient anti-money laundering systems. Their recent activities of intentionally stripping information from wire transfers originating in Iran, Libya, Sudan, and Burma (which clearly violates US sanctions) occurred while they were still under ‘surveillance’. It is quite evident that other banks, including Wachovia, HSBC, ING, amongst others, have committed similar ‘repeat’ violations to US efforts of combating money laundering, which displays a deliberate disregard, or even rejection, of US law. British regulators conducted a study last year that revealed that seventy-five percent of the UK banks that were investigated were not in compliance with anti money laundering regulations, particularly when dealing with customers who are at a high risk of corruption. US banks have no reason to be any more compliant.

Although these banks did not go unpunished, the fines and required monitoring are clearly not a sufficient deterrent. It must also be noted that individuals are the ones who make decisions. As a result, those who are guilty of illicit actions should be held accountable, rather than just fining the entire institution with little effect on those who actually committed the crimes. It would be safe to assume that the ultimate goal should be to eliminate the flow of illegal funds which are essentially facilitated by these banks. In order to do so, money laundering (or at least the risk associated with it) must become uneconomical, fiscally irresponsible, and dangerous.

However, expanding the consequences so that they are an effective deterrent will only be sufficient once anti-money laundering laws and regulations are tightened and strictly enforced. This systemic problem must be addressed with a systemic solution; one that lies with giving the US government control over its borders once again.

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Written by Farida Aboulmagd

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